2021 (1) TMI 1159 - Tri - Insolvency and Bankruptcy

Tribunal orders refund of Bank Guarantee to Corporate Debtor in violation of IBC moratorium

Sundip Bhattacharya RP of Reliance Naval & Engineering Ltd   Versus UCO Bank & Anr

The Tribunal allowed the application, directing the Respondent to refund the Bank Guarantee amount and deposit it into the Corporate Debtor's account, ... Seeking grant of refund of Bank Guarantee and deposit the same in the Bank Account - amounts received during CIRP, during moratorium period - amounts forming part of the assets of the Corporate Debtor or not - violation of provisions of Section 14 of the Code - HELD THAT:- It is noted that Bank Guarantee was issued on 14.07.2016 for ₹ 3,34,90,458/- in favour of the customer of the Corporate Debtor, which was valid upto 31.08.2019. The Bank Guarantee was invoked by the Customer, Indian Navy on 22.08.2019 for warranty obligations before the commencement of the CIRP date i.e on 15.01.2020. The amount paid by the Respondent Bank on invocation of Bank Guarantee from its own funds on account of non-availability of Funds in Corporate Debtor's Accounts before the commencement of CIRP amounts to grant of credit facility to the Corporate Debtor before CIRP. The amount retained by the Customer, Indian Navy by invoking Bank Guarantee was released by Indian Navy on 28.09.2020. The amount was released by the customer, Indian Navy after the date of commencement of CIRP when the moratorium is in force to the Corporate Debtor. As per Section 14 of 1B Code, the amount received during the CIRP when the moratorium is in force, is the asset of the Corporate Debtor and RP has to deal with the same as per the provisions of the 1B Code. The Respondent is not entitled to adjust the same when the moratorium is in force. If, he has any dues pending from the Corporate Debtor on the date of commencement of CIRP, it is open for him to file his claim before the RP. Application allowed. Issues Involved:1. Refund of the Bank Guarantee amount.2. Violation of Section 14 of the Insolvency and Bankruptcy Code (IBC).3. Entitlement and adjustment of the Refund Amount by the Respondent.4. Classification of the Refund Amount as an asset of the Corporate Debtor.Issue-Wise Detailed Analysis:1. Refund of the Bank Guarantee amount:The Applicant, acting as the Resolution Professional (RP), sought directions for the Respondent to refund the Bank Guarantee amount with interest, asserting it as part of the Corporate Debtor's assets. The Corporate Debtor had entered into a contract with the Indian Navy, requiring a performance bank guarantee, which was invoked by the Navy due to the Corporate Debtor's failure to extend it. Subsequently, the Navy refunded the amount to the Respondent's designated account, but the Respondent adjusted it against its dues.2. Violation of Section 14 of the Insolvency and Bankruptcy Code (IBC):The RP argued that the Respondent's adjustment of the Refund Amount violated the moratorium imposed under Section 14 of the IBC, which prohibits the transfer, encumbrance, alienation, or disposal of the Corporate Debtor's assets during the Corporate Insolvency Resolution Process (CIRP). The RP cited precedents from the National Company Law Appellate Tribunal (NCLAT) cases, including Indian Overseas Bank vs. Mr. Dinkar T. Venkatsubramaniam and State Bank of India vs. Debashish Nanda, reinforcing that financial creditors cannot recover or appropriate amounts from the Corporate Debtor's account during the moratorium.3. Entitlement and adjustment of the Refund Amount by the Respondent:The Respondent contended that the Refund Amount was not an asset of the Corporate Debtor, as it was paid from the Respondent's own funds due to the Corporate Debtor's account being classified as Non-Performing Asset (NPA). The Respondent maintained that the amount refunded by the Navy should be appropriated towards the dues arising from the discharge of the Performance Bank Guarantee, which was invoked before the commencement of the CIRP.4. Classification of the Refund Amount as an asset of the Corporate Debtor:The Tribunal noted that the Bank Guarantee was invoked before the CIRP commencement date, and the amount was released by the Navy after the CIRP had commenced and the moratorium was in force. As per Section 14 of the IBC and the NCLAT's decision in Indian Overseas Bank vs. Mr. Dinkar T. Venkatsubramaniam, any amount received during the CIRP is considered an asset of the Corporate Debtor. Therefore, the Respondent was not entitled to adjust the Refund Amount during the moratorium period and was required to file its claim before the RP if there were any dues pending from the Corporate Debtor.Conclusion:The Tribunal allowed the application, directing the Respondent to refund the Bank Guarantee amount and deposit it into the Corporate Debtor's account, adhering to the provisions of the IBC. The Respondent's actions were deemed in violation of the moratorium under Section 14, and the Refund Amount was classified as an asset of the Corporate Debtor during the CIRP. The application was disposed of with no order as to costs.